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F500 2021-206- Principal Financial

The Des Moines-based financial services company helps clients with retirement planning and asset management and offers varied insurance coverage plans worldwide.

This year's Fortune 500 marks the 66th running of the list.

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Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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Principal Financial

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Good morning, and welcome to the Principal Financial Group's Second Quarter twenty twenty five Financial Results Conference Call. There will be a question and answer period after the speakers have completed their prepared remarks. Ask a question during the session, you will need to press 11 on your telephone. To withdraw your question, please press 11 again. We would like we would ask you that you be respectful of others and limit your questions to one and a follow-up, so we can get everyone in the queue.

I would now like to turn the conference call over to Humphrey Lee, Vice President of Investor Relations.

Thank you and good morning. Welcome to Principal Financial Group's Second Quarter twenty twenty five Earnings Conference Call. As always, materials related to today's call are available on our website at investors.principal.com. Following a reading of the Safe Harbor provision, CEO, Deanna Schrabow and CFO, Joe Pitts will deliver prepared remarks. We will then open the call for questions.

Members of senior management are also available for Q and A. Some of the comments made during this conference call may contain forward looking statements within the meaning of the Private Securities Litigation Reform Act. The company does not revise or update them to reflect new information, subsequent events or changes in strategy. Risks and uncertainties that could cause actual results to differ materially from those expressed or implied are discussed in the company's most recent annual report on Form 10 ks filed by the company with the U. S.

Securities and Exchange Commission. Additionally, some of the comments made during this conference call may refer to non GAAP financial measures. Reconciliations of the non GAAP financial measures to the most directly comparable U. S. GAAP financial measures may be found in our earnings release, financial supplement and slide presentation. Deanna?

Thanks, Humphrey. Good morning to everyone on the call. This morning, I will discuss key milestones and highlights from the second quarter as we continue executing our strategy with discipline and focus to deliver strong results for our customers and shareholders. Joel will follow with additional details on our results and our capital position. Starting with results for the second quarter, adjusted non GAAP earnings excluding significant variances was $469,000,000 or $2.7 an 18% increase in EPS over the 2024.

These results were supported by revenue growth, strong margin and expense discipline across the businesses while investing for growth, a lower effective tax rate, and cumulative impacts from share repurchases. We returned $320,000,000 of capital to shareholders in the second quarter, including $150,000,000 of share repurchases. We also raised our common stock dividend for the eighth consecutive quarter, aligning with our 40% payout ratio. Volatility continued to underpin markets in the second quarter. The market drop in April drove daily averages lower for the quarter, impacting our second quarter fee revenue.

This is in contrast to the positive market performance, which drove the end to end increase in our AUM. Notably, the strong rebound in May and June builds positive momentum heading into the second half of the year. The rally supported positive market performance in the quarterly AUM roll forward, bringing total company managed AUM to $753,000,000,000 a 5% increase over the sequential quarter and an 8% increase over the 2024. Net cash flow was negative $2,600,000,000 in the quarter, an improvement sequentially driven by positive net cash flow from global institutional clients across multiple products as we talked about last quarter. We continue to see demand for our investment capabilities.

This included a significant high yield fixed income funding from an existing institutional client, continued flows into our mid cap and private real estate equity strategies, and positive momentum in our ETF offerings. Overall, we remain confident in the second half of the year, and we expect our full year Enterprise results to be aligned with our 2025 outlook and Enterprise financial targets. Now turning to the businesses. In Retirement, we delivered strong results in the second quarter. Overall RIS sales of $6,000,000,000 increased 7% year over year, driven by our Workplace Savings and Retirement Solutions, or WSRS, and RILA.

Looking ahead, we have a robust pipeline of opportunities that positions us well for continued growth. We see continued success in our small and mid sized market, with 27% year over year transfer deposit growth generating positive account value net cash flow in the quarter. Turning to pension risk transfer. According to LIMRA's first quarter industry report, Principal ranked number three in both sales and contract count, reinforcing our leadership position in the market. We continue to be disciplined on PRT opportunities, focusing on those that meet our targeted returns.

In Principal Asset Management, AUM of $723,000,000,000 increased 5% sequentially on strong market performance and FX tailwinds. Principal Asset Management sales of $33,000,000,000 increased 19% over the prior year quarter, driven by Investment Management sales, which increased 24% over the same period. This included $10,000,000,000 sourced from our international clients. This quarter's results reflect continued progress on our strategy, the power of our global asset management business, and the benefits of a diversified client and channel base. In Investment Management, total fee revenue increased 6% over the year ago quarter.

Management fees grew 4% on higher average AUM, and we saw increased contributions from performance fees. We continue to expect full year performance fees to be in line with 2024. In our Specialty Benefits business, we saw strong earnings growth of 10% as we remain focused on pricing discipline, leading to strong underwriting performance and margin expansion of 100 basis points. This disciplined approach positions us well for continued strong earnings growth. In our Life Insurance business, we delivered strong sales results, driven by record nonqualified sales.

These products continue to resonate with business owners and key employees, reinforcing our strong distribution relationships. Principal continues to be recognized externally for its leadership. We were named one of the twenty twenty five Best Places to Work for Disability Inclusion after earning a top score of 100 on the 2025 Disability Equality Index. The Principal Experience, or PAGE, was recognized as part of Newsweek's inaugural AI Impact Awards in the category of Best Outcomes Financial Services. Our AI efforts were recognized for outstanding achievements in applying AI to solve complex challenges, improve operations, and deliver meaningful outcomes.

This spotlights our commitment to driving smarter decision making, more personalized customer experience, and stronger risk management. Additionally, we received a 2025 CSO award for our digital ID verification initiative, highlighting the innovation and security embedded across our customer experience. Overall, the second quarter demonstrated the strength of our business and our ability to deliver results in dynamic markets. We're entering the second half of the year with momentum, confidence in our strategy, and continued discipline across the organization. Before I turn it over to Joel, I want to take a moment to congratulate him on officially being named our Chief Financial Officer in May.

Joel stepped in as Interim CFO during a period of transition, and his deep institutional knowledge, steady leadership, and clear command of our financials and businesses has been evident throughout. I'm looking forward to continuing to partner closely with him as we move the company forward and deliver strong results for our employees, customers, and shareholders. Joel?

Thanks, Deanna, for the kind words. I'm honored to officially step into the CFO role and appreciate the opportunity to continue working alongside our leadership team to create value for our various stakeholders. This morning, I'll share key contributors to our financial performance for the quarter, as well as details of our capital position. As shown on slide three, reported non GAAP operating earnings were $489,000,000 up 27% year over year, and EPS was $2.16 up 33%. This included a $32,000,000 after tax or $0.14 per share benefit from a one time expense accrual release that is reflected as a significant variance.

Excluding significant variances, second quarter non GAAP operating earnings were $469,000,000 or $2.7 per diluted share. This represents an 18% increase in EPS over the 2024 and a 14% increase year to date. Second quarter reported net income, excluding exited business, was $432,000,000 with minimal credit losses of $17,000,000 Non GAAP operating ROE, excluding AAR, of 14.9% improved 170 basis points compared to the year ago period, comfortably within our 14% to 16% targeted range. These strong results were impacted by market performance in the quarter. Specifically, daily equity market averages on our assets under management were down sequentially, but up 6% compared to 2024.

The following commentary excludes significant variances, which can be found on slide 12. Starting with RIS, second quarter top line growth was 3%. This, coupled with expense discipline while investing in the business, resulted in a 40% margin, an 80 basis point improvement over the 2024 and near the high end of our targeted range. Pretax operating earnings increased 5% from the prior year quarter, driven by growth in the business and margin expansion. Fundamentals across the business remain healthy.

Transfer deposits were up 8% compared to the 2024, including a 24% increase in fee based transfer deposits. And the number of individuals deferring and receiving employer matches is up 3% compared to the year ago quarter. Total WSRS recurring deposits grew 7% on a trailing twelve month basis, with our SMB segment continuing to outperform at 9% growth over the same period. Participant withdrawal rates remained stable, and we're seeing continued strong contract retention. In Principal Asset Management, Investment Management revenue increased 6% compared to second quarter twenty twenty four, within our targeted range.

Higher management and performance fees contributed to a two fifty basis point improvement in Investment Management's quarterly operating margin. In International Pension, net revenue was impacted by foreign currency compared to the year ago quarter. On a constant currency basis, net revenue increased 2% and pretax operating earnings grew 7% year over year. Operating margin of 47% expanded 180 basis points from the prior year quarter and remains within our targeted range. In Specialty Benefits, pretax operating earnings increased 10% compared to the year ago quarter, driven largely by business growth and more favorable underwriting results.

Premium fees grew 3% compared to the year ago quarter, impacted by sales and slight moderation in wage and employment growth. Importantly, persistency remains strong and in line with the prior year and our expectations. We expect overall premium growth to trend up in the second half of the year. The FBD loss ratio improved 130 basis points compared to the year ago quarter and was at the low end of our targeted range. This improvement was driven by more favorable group disability and group life results.

In addition, dental results improved relative to the year ago quarter and were positively impacted by our recent pricing actions. Operating margin of 15% expanded 100 basis points compared to the year ago quarter. It was in the top half of our targeted range. In life insurance, premium fees increased 5% compared to the 2024, as strong business market growth of 17% more than offset the runoff of the legacy life insurance business. Pretax operating earnings of $23,000,000 were down year over year, driven by higher mortality from net claim severity, while while frequency was better than expected.

Our tax rate for the quarter was 18%, in line with our full year target range of 17% to 20%. We expect the rates to remain within this range for the second half of and full year 2025. Turning to capital liquidity. We ended the quarter in a strong position with $1,400,000,000 of excess and available capital. This includes $800,000,000 at the holding company at our targeted level, $250,000,000 in our subsidiaries, and $350,000,000 in excess of our targeted 375% risk based capital ratio, which is estimated at 400% at quarter end.

As a reminder, we built up excess capital in the first quarter to pre fund our $400,000,000 May maturity, which is paid off in the second quarter. Free capital flow in the quarter was slightly above our targeted range, and we expect to deliver on our targeted 75% to 85% free capital flow for the full year. As shown on slide three, we returned $320,000,000 to shareholders in the second quarter, including $150,000,000 of share repurchases and $170,000,000 of common stock dividends. As a reminder, capital deployments are seasonally higher in the second half of the year, and we expect a higher level of share repurchases in the latter half of the year. With our strong capital position, we remain committed to delivering on our full year capital return targets of 1,400,000,000.0 to $1,700,000,000 including $700,000,000 to $1,000,000,000 of share repurchases.

Last night, we announced a $0.78 common stock dividend payable in the third quarter. This is a

$02 increase from the dividend paid in the second quarter and an 8% increase over both the year ago quarter and trailing twelve month period. This continues to align with our targeted 40% dividend payout ratio and demonstrates our confidence in continued growth. As Deanna outlined, our second quarter results reflect the strength and benefit of our diversified business. We remain confident in our ability to deliver on our financial targets, committed to deploying excess capital and focused on creating long term value for shareholders, all while supporting our customers' evolving needs. This concludes our prepared remarks. Operator, please open the call for questions.

Thank you. Our first question will come from the line of Tom Gallagher from Evercore ISI. Your line is open.

Good morning. First question is just on the overall expense levels. Deanna, I believe last quarter you mentioned that there was going to be a focus on it. Is there more to come on that in the second half of the year? Or do you feel pretty good about where you're at now?

Thanks, Tom, for the question. I'll ask Joel to give a little more color on that. I think if you've looked at our experience over the last ten to fifteen years, we have a proven track record of aligning revenue and expenses. Obviously, the revenue and market outlook sitting here today is significantly different than it was when we were sitting here last quarter. But we did do some pull back on expenses and we continue to be very prudent about our expenses while continuing to make sure that we're balancing that with investments in the business. But I'll let Joel give a little more color.

Yeah, Tom, thanks for the question. As we've done historically, we'll continue to actively and responsibly align expense with revenue, as Deanna mentioned. And this quarter was no different. This is evidenced by our continued margin expansion. As we mentioned in our prepared remarks, margins have improved 140 basis points year over year at the enterprise level and 80 basis points on a trailing twelve month basis.

And this is all a product of expenses growing at a slower rate than revenue. During periods of market volatility like we experienced early in the first part of the second quarter, we will focus on what we can control. At that time, we leaned into expense management activities and won't allow macro headwinds to hit our bottom line dollar for dollar. That's been our practice in the past and that will certainly be our practice in the future. So, we'll continue to align expense with revenues while investing in the business, and we feel really good about our expense structure going forward.

Yeah, my follow-up is, I noticed the RIS account values in the spread side went down somewhat this quarter. It looks like it's investment only. Any color on what you expect for the balance of the year on spread balances within RIS?

Yes. Thanks, Tom. I'll have Chris address that question.

Yes. Good morning, Thanks. Yes, I think certainly IO issuance is a piece of the answer. We certainly if we look year to date, we saw more maturities in 2025 and less issuances. As we look at that business, it's opportunistic, so we're constantly scanning the market to make sure that if there's an opportunity to get our targeted returns, we'll look at that, and we're going to continue looking at that through the balance of the year.

I wouldn't read any softness there across the full year. Second driver of the spread base flows is really related to PRT. PRT had a bit more moderate quarter this year at about $445,000,000 of PRT sales. That is really due to One, the pipeline of opportunities has been a bit smaller than we expected in the second quarter.

And secondly, we weren't able to get the targeted returns. And so we were very disciplined and remain disciplined in making sure that we prioritize returns over volume. And if we can't put that capital work, we look to deploy that to other better organic uses or to return it to shareholders. So when I think about PRT generally, I think PRT, again, I think we're going to have a good year on PRT, but it's really going to be highly dependent on what that pipeline looks like in the second half of the year, as well as that market competitiveness and the returns that we're able to get.

One moment for our next question. Next question comes from the line of John Barnidge from Piper Sandler. My

first question, building on the comments on PRT, talked about being focused on the returns and not the volume. Is it becoming a bit more of a competitive environment? Or are there fewer maybe pension partners coming to market given the market dislocation that occurred in April? Thank you.

Yeah, thanks John. As Chris just mentioned, the pipeline was a little bit less, but we continue to see a lot of success converting our DB clients into our PRT, and we'll continue to lean into that as well. But I'll see if Chris has some additional color.

Yeah, think it really remains to be seen what that pipeline is going look like in the second half. I think we remain optimistic in where we think we are going to land in PRT. If you look historically, we've sort of been in that range of $2,500,000,000 to $3,000,000,000 over the last several years, and we expect to land in that range. And where we land in that range is going to be really dependent on pipeline as well as that more competitors. There clearly are more competitors in the PRT.

But again, where we compete, we actually are able to generate a fair amount of our business from our own existing DB customer block, and then we're really thoughtful about returns and making sure we get our target returns and produce capital outside of those customers. I feel really good about it, but it really remains to be seen over the balance of year and what develops.

John, do you have an additional question?

Yes. Thank you very much. Maybe on variable investment income experience in the quarter, it's different between segments, and then any visibility into the third on that? Thanks.

Yeah, John, I'll turn it over to Joel to address that question.

Yeah, John, thanks for the question. As it relates to the quarter, VII performance was improved from first quarter twenty twenty five, and you can see that through our significant variances, which we provide a lot of transparency in that regard. As a reminder, just our portfolio is a little bit different than what you see elsewhere with 50% of our Alt portfolio in real estate. That results in a lower concentration in categories such as private equity and hedge funds. On the real estate front, year to date and 2Q twenty five are below run rate due to leasing activity and low transaction activity, which exactly we expected coming in the year, and signs of recovery are evident as office leasing has picked up.

Since the majority of our real estate assets are mark to market are not mark to market each quarter, we're sitting in a portfolio of very highly appreciated assets, gains of which they're not recognized until the time of sale. So we are expecting that transaction activity to pick up in the latter part of the year. We had no transaction activity in the real estate front in the second quarter. But as we've done historically, we'll continue to provide transparency in our all three turns relative to long term run rate expectation with the use of our significant variances. As it relates to our outlook, to your question, we do expect improved results in the final six months of 2025 relative to what you saw in the first half.

And we do expect improvement year over year. Having said that, we continue to expect returns for May of the year to be lower than long term run rate assumptions, but again improved in the latter half of the year. So, hope that helps. John, any other questions on that front?

One moment for our next question. Our next question will come from the line of Wes Carmichael from Autonomous Research. Your line is open.

Hey. Thank you. Good morning. First question on PGI. I think performance fees are around 9,000,000 or so there, a bit higher than I was expecting.

So, just curious if there was more transactional activity in the quarter. And I think you previously talked about performance fees being relatively in line with 2024. So, just wondering if that outlook still stands.

Yeah, I'll ask Kamal to address performance fee in our Investment Management segment.

Wes, good morning. Thanks for the question. So, I'll start. I think you had two parts, what drove our performance fees and how do we expect the rest of the year to play out. So first, we were quite pleased with the nature of performance fee this quarter.

This quarter, the performance fees were primarily generated from our alternative debt strategies, which is predominantly direct lending and real estate debt, which reflects both a strong execution and the capabilities we've built over the years. Historically, a lot of our performance fees were real estate equity driven. So, it's good that we are diversifying the base of our performance fee. The other aspect to consider as you think about is given that it was generated from debt, sometimes the quantums can be smaller, but the aperture of opportunity is wider as we build these capabilities. To your question on what does the rest of '25 look like, I would say the fee levels would be similar to 2024.

The transaction and borrower fees are probably expected to return to a more normal level as we complete this year, but those will be my perspective on your questions.

Yeah, I do. And apologies for mischaracterizing investment management as PGI. But just switching to RIS, think last year you'd launched a target date fund with an in plan guarantee, but there was some plan around a product number two point zero that was kind of in the works. I'm just curious if there's any update there. I think the plan was for it to be on balance sheet, but I don't know if Chris had any update there.

Yeah, thanks, Liz. Yeah, we did launch a passive target date with some guaranteed in it in the first quarter of this year off platform and rolled it off on platform in the second quarter. So we are beginning to see client take up, but honestly, it's really early days on that, and we think there's some good opportunities for us as plan sponsors get more accustomed to it and our advisors get more accustomed to it as well. So I think there's a good still remaining really good opportunity for us there, but I would say we're still in the very early innings of that game.

you. One moment for our next question. Our next question will come from the line of Suneet Kamath from Jefferies. Your line is open.

Great. Thank you. Good morning. Just want to start on RIS. Obviously, earnings and the margins were quite strong, but the flows continue to be negative.

So maybe just can you provide some color in terms of what's going on there? And what is your sort of outlook for flows in the balance of the year? Thanks.

Yes, Suneet. Thanks for recognizing the strong results in that business. I'll ask Chris to give a little more color on our flow outlook. But as you know, there are some dynamics within that business that are pressuring flows, but continue to focus on those areas where we can drive growth. I think those played out this quarter as well. But I'll let Chris give some additional color.

Yeah, thanks Suneet. I think as we've talked about for a few quarters now, elevated markets are not helpful to overall AV net cash flows. And so we're continuing to see that trend continue. But if you look at the second quarter, the AV net cash flows are significantly improved from the year ago quarter, and we saw improvement across all drivers, including transfer deposits, growth in recurring deposits, and more stabilized participant withdrawal rates. I think Deanna hit and Joel have hit on some of the key positives as well.

Saw really strong fee based transfer deposit growth versus year ago, and in the trailing twelve months, we continue to see strong asset retention, and we continue to see real nice resiliency in SMB flows. When it comes to participant withdrawals, we do see stabilization there, and while the dollar of withdrawals are up about 4% from year ago, the overall average AV is up about 7%. So you're seeing sort of a stabilization or improvement in withdrawal rate. And those withdrawals are largely elevated due to the strong market performance. So that continues to be a bit of the theme there and the challenge there.

The only other thing I'd say with respect to fee based flows, Suneet, is that as we pointed out last quarter, some of the fee based AV is also being impacted from outflows from our traditional variable annuity block, and some of that is converting into spread based RILEH product. And so that's another pressure that we're seeing in fee based. So you might see fee based traditional VA, but we're seeing very nice sales and increases of spread based RILEH product.

Got it. And then just sort of related question. Are you able to proactively reach out to plan participants as they get close to retirement and offer some of the rollover solutions that you provide? Is that something that you're able to do? And if it is, is that something that you actively do? Thanks.

Yeah, Suneet, I think we laid out a lot of that strategy at our Investor Day last November, but I'll let Chris give some additional color there as well.

Yeah, thanks, Suneet. Yes, I think certainly we have put emphasis on being able to offer advice solutions to our participants that we serve, and we did roll that out in the third quarter of last year, and we're seeing very nice success on that. I wouldn't say it's as much as they're proactive as much as it's bringing participants along the journey, and if they have questions about what to do with their funds or what they might do with their retirement savings, we're able to provide that advice. Where in the past, we were in education only mode about their alternatives. So that is a bit of a shift, and we continue to see significant opportunities there.

And again, as we highlighted in the investor slides, we're really focused on participant growth, and we're seeing overall participant growth, and then we're also not just seeing the total number of participants growing, but also the amount that they're saving improving and growing. And so that funnel is growing for us as we think about how do we capture more opportunity to serve individuals both while they're in the plan or also when they're out of the plan.

Thanks, Suneet. The other thing I would just mention is when we are successful in that, sometimes the actual AUM shows up in other parts of the organization. And so ultimately that does drive results at the enterprise level, but from a geography perspective may shift at that point in time as well.

Thank you. One moment for our next question. Our next question will come from the line of Ryan Krueger from KBW. Your line is open.

Hey, thanks. Good morning. I have a question on investment management. It seems like you have momentum on gross sales, but you've also seen withdrawals be somewhat elevated, which has led to flows not improving anymore. Can you give a little bit more color on the withdrawal side of things?

And do you have any insight going forward into if you expect to continue? Or could we see some improvement there going forward?

Yeah, Ryan, I'll ask Kamala to give some color there. With the vast volatility in the market during second quarter, we did see some impacts kind of flow through. But as you mentioned, we are seeing some strong momentum on the sales side. So I'll ask Kamal to give a little more color there.

Good morning. So I'll start with what you highlighted, which was I think you've highlighted our strong momentum on gross sales, which is very true. I think as Deanna highlighted, we actually saw positive NCF from our global institutions this quarter, And then we also had very, very strong 24% gross sales growth in investment management on a year over year basis, which we are quite pleased with. It sort of shows our focus on expanding the clients that we cover. Let me first handle what I see in terms of the growth flow momentum and give you some insights on what's driving it, and then I'll also give you some sense of what the nature of outflows was this quarter.

So one segment I would highlight for you is I'm quite pleased with the momentum we have in our Asia institutional business. To just give you an outline, that business is now almost $50,000,000,000 in AUM for us, and that has only grown over time. More recently, we've accelerated the nature of mandates we are bringing in. Some very, very long term investors like sovereign wealth funds have been a big part of growing that segment for us. In fact, if you just look at that segment, we've almost doubled our business from last quarter last year to this quarter, almost 100% growth, which gives me quite confidence that we are doing very well on the growth side of our institutional segment.

So the nature of outflows this quarter, I would say, were mostly focused in our US businesses, but it was due to increased hedging from a lot of these clients. It happened in two areas. One, there was active rebalancing away from areas that have done quite well. In particular, we have a strength in REITs and small cap where they were rebalancing away. And then there was some reallocation by some of these investors into nontraditional assets.

We obviously don't cover those asset classes, But we are quite successfully diversifying our flows as well away from that. If I look at our international clients, I think Diana highlighted it. We had almost $10,000,000,000 of quarterly sales. If you look at that segment, that is almost 50% increase from last year's quarter. So you'll see the momentum we have in our gross sales numbers.

The other segment I would highlight for you today is just we historically talked about our strength in real estate. When I look at our middle market direct lending business, our private infrastructure debt business, and the private investment grade business, that continues to expand its AUM base. That AUM base has gone up almost 25% year over year. So I would say our focus continues to be on growing our gross sales while we manage the outflows and the results are showing this quarter, And I think that's helping us deliver excellent performance compared to other asset management peers.

I had one for Amy. Just can you talk a little bit more about what you're seeing in dental, both from a top line standpoint as well as a loss ratio standpoint and your thoughts on that business going forward?

Yeah, I'll have Amy take that one. But as mentioned, we are constantly balancing pricing discipline with our competitive position and are really managing that business for long term earnings growth. But I'll have Amy give you some color specific to dental.

Yeah, Ryan. So I think a lot of what I'm still seeing in dental is a continuation from some of the prior quarters. So from a competitive environment, it's definitely a prominent product in those people who have that as part of their portfolio. Again, there's a subset of our competitors that have dental as a bigger part of their portfolio. And it's competitive out there. So I would say we are definitely seeing new sale rates are competitive. I am seeing probably a little bit of, I'm gonna call it market activity and easing begin to happen on the renewals. And so here's how I'd characterize that.

Dental is a product that again, if you didn't get the pricing quite right, hadn't built in trend or inflation at the levels that you needed to, you see that pop up in your results pretty quickly. It's a highly utilized product and so it shows up in your results in twelve, eighteen months later. And so what I am seeing are some renewals and renewal rates for dental that are high with some of our competitors. That is probably over time through some of '25, but probably more into '26, probably beginning to show up as an opportunity for even healthier new sale rates. And so again, our perspective on dental has strategy is so important, we want to deliver manageable predictable renewals for that small to medium sized customer base that has really sharp focus on cash flow.

We want to make sure that we're pricing it right upfront. And the best way to deliver that renewal rate at a rate that they can withstand is to price it right upfront. So what I'm seeing is we're still not probably seeing quite what we need to see yet in pricing it right upfront. So we're not selling as much, just bluntly, of dental and some of the other products that might bundle with it. But what we are seeing is beginning to see some loosening up on the persistency side.

So when I think of our own performance for dental loss ratios, and I think this is a little bit inherent in your question, we definitely do still see a loss ratio pattern though that is first half, second half. So that first half is definitely where we see the experience come in. And we see a pattern where third and fourth quarter are markedly better. So I think last year's pattern of second, third, and fourth quarter is a really nice pattern for us to think about through the rest of our year in terms of how the experience actually emerges for dental. So that's kind of how I'm thinking about the business. Hopefully that gives you some color.

Yeah, Ryan, just a couple other comments. Very proud of one, seeing dental loss ratio improve 50 basis points in the quarter and our overall specialty benefits loss ratio being at the low end of our targeted range despite the fact that the dental loss ratio is elevated in the second quarter. And so, again, Amy and the team are managing that business very effectively for long term profitable growth. And I'm confident we will get through this in a very positive realm.

Thank you. One moment for our next question. Our next question will come from the line of Joe Horowitz from Dowling and Partners. Your line is open.

Hey, good morning. One more on top line and specialty benefits. I think in the prepared remarks, Joel mentioned that growth is expected to pick up in the second half of this year. Just curious what you're seeing that gives you confidence in that.

Yeah, so I definitely see that the second half of the year has the potential to return something that's headed back into the range that we communicated. I do want to make clear, I don't think our full year results are going to sit back in that six to 9% range. I think we're going to fall short of that. What I am comfortable with though, is that the brokers who are starting to see, the intermediaries that we work with that are starting to see some of those higher renewals on dental coming from some of our competitors are really turning back to saying, you know what, it probably makes sense to keep the bundle or put the bundle back with principals. So I do see us returning to that growth mode.

Again, probably not sitting within that six to 9% growth range, but improving. I also think the piece that we gotta think about for that second half of the year is that there's that natural first half, second half. And so when we think about utilization, when we think about overall loss ratio, our ability to keep pricing attractive for the entire bundle is more dependent upon our overall loss ratio than one single product's loss ratio. So again, Deanna just mentioned this, but the overall loss ratio being at the very low end gives us the capability to make sure we're seeing that show up in the overall bundled pricing.

Principal Financial (PFG) Q2 2025 Earnings Call Transcript

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